Why Modi’s Make in India is a flop

Prime Minister Narendra Modi was therefore absolutely right when he stated that his government’s goal was to give the highest priority to ‘Make in India’ and called upon the world’s manufacturing companies to “Come and make in India”.

Prime Minister Narendra Modi was therefore absolutely right when he stated that his government’s goal was to give the highest priority to ‘Make in India’ and called upon the world’s manufacturing companies to “Come and make in India”.

No large country can become rich without manufacturing the goods that are consumed or demanded by its people. Most services—especially the basic, low technology and low value-added services—will anyway be produced within the country. A country will move up the ladder of prosperity if it can manufacture the goods and produce the services required by its people and also export a considerable part of those goods and services. Prime Minister Narendra Modi was therefore absolutely right when he stated that his government’s goal was to give the highest priority to ‘Make in India’ and called upon the world’s manufacturing companies to “Come and make in India”.

Manufacturing gains ground
The share of manufacturing in India’s GDP is about 16.5%. Agriculture has declined steeply and the Services sector has risen sharply but, notwithstanding the changes in the shares of the two sectors, manufacturing has gained ground. 70% of manufacturing units are in the private sector and about one-third of those are with the quasi-corporate and unorganised entities. Manufacturing’s share of GDP has risen steadily from 9.8% in the 1950s to about 16.2% in the 2010s. Mr Modi promised a further boost to manufacturing. To make a product and capture a significant market share is not an easy task. There may already be one or more persons making the same product. It may be imported too. To make the product, the intending manufacturer must make it better or cheaper or reach it to the consumer sooner or be able to offer something which makes his product more attractive to the consumer. It is here we face the hurdle of ‘factor costs’. Land, labour, electricity, technology, transport, cost of capital, cost of borrowing, and many others are factor costs. Unless some or all factor costs are favourable, no one will embark upon manufacturing.

The major manufacturing economies of the world have reached their positions by making factor costs more advantageous if the product were made in their countries rather than made elsewhere. Making in a country must provide a ‘competitive advantage’ to the manufacturer. Take cars. They were first mass-manufactured in the United States. When Germany and Japan emerged as major economies, they offered competitive advantages and the industry shifted to Germany and Japan. A few decades later, car manufacturing moved to South Korea. A couple of decades later, a significant portion of car manufacturing shifted to India.

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The shift to India was not fortuitous. It was because of a well thought out strategy that was translated into clear policies. That story which began in 1991-92 deserves to be told separately. When Mr Modi promised to make India into a global hub of manufacturing, I assumed that he had been advised—and he had reflected—on the many hurdles that had to be crossed. I refuse to believe that ‘Make in India’ was just another slogan to enthuse the large gathering on Independence Day, 2015.

The steep decline
Two years later, what is the status of ‘Make in India’? The CSO has released the quarterly growth rates of Gross Value Addition (GVA) of manufacturing at constant prices (2011-12). I have placed them along side the growth of overall GVA:

Since the announcement of ‘Make in India’ on August 15, 2015, there is no evidence that manufacturing has gathered momentum. On the contrary, it seems to have lost steam and, in 2016-17, the sector had weakened considerably. Between Q1 and Q4 of 2016-17, the growth rate of manufacturing GVA had halved. The weakness of the manufacturing sector is reflected in the steady drop in the growth rate of overall GVA. The conclusion is that apart from the announcement of ‘Make in India’, there has been little policy or administrative support. All other data point to the same conclusion. In the five quarters between Q4 of 2015-16 and Q4 of 2016-17, Gross Fixed Capital Formation (GFCF) as a proportion of GDP had declined—30.8, 31.0, 29.4, 29.4 and 28.5. A drop of 2.3% in 12 months is a disaster. Considering that GFCF was 34-35% only a few years ago and the government has done nothing to step up private as well as pubic investment, it is a catastrophe.

Data point to flop
Data on IIP point to the same conclusion. In May 2014, the index was 183.5, in August 2015 it was 184.8, in March 2016 it was 208.1 and in February 2017 it had fallen to 190.1. Data on credit growth point to the same conclusion. Credit growth to the industry sector has been negative since October 2016. Credit growth to micro/small and medium industries has been negative since March 2016 and June 2015 respectively.Data on job creation point to the same conclusion. The eight leading job-creating industries created only 109,000 jobs during the period April-September 2016. That is a sign of stagnation.Data on electricity demand point to the same conclusion. The average Plant Load Factor of thermal plants is about 60% reflecting poor demand for electricity. I had welcomed ‘Make in India’. It was innovative and aspirational. Unfortunately, it appears that there was little homework done before and practically no policy support after. ‘Make in India’ has turned into a hollow slogan.

India is plunging into economic crisis fast if not already not in. The data , that we get, is doctored corrupted, like GDP, which actually is half that is given to us, by adding the expenditure into the income!
Unemployment is skyrocketing, the sell is nosediving. This is part of capitalist production, aggravated by the mismanagement of the present government, like demonetisation, GST, p ering the people's purchasing power. This "mismanagement" is part of the greed of the big capitalists, who helped the BJP government in power with capital, think tanks, media, propaganda, event managers!

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Nitesh Pandey

Jun 12, 2017 at 10:56 am

We need a bigger timeline a data to ess success or failure of Make in India. Setting up a manufacturing unit takes a long time in India. Policy changes are needed to address that issue. Government upto this point has behaved like a populist regime. That's not what is required. They need to be less populist and more reformist. Implementing reforms started by previous government is not enough. They will have to come up with some genuinely creative ideas.
Another problem is that their seems to be a genuine lack of effort and more propo a. Millions of jobs are created daily in Facebook and twitter posts. Billion dollar FDIs are also being generated but only on social media and not on the ground. PM may ask himself that if I can get away with all the b ers I do why Make any efforts to bring reforms which are nit popular. People need to be more vigilant with their government instead of being led astray so called nationalists on social media and news channels.

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Doni

Jun 12, 2017 at 8:21 am

Economy will surge back

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Sivadasan Kesavan

Jun 11, 2017 at 8:15 pm

Growth of internal production and global market compe ion has an intrincic relationship. Can India compete in the global market on goods manufactured in other countries like China? Let us not preach "export or perish". Let us raise production of goods that could find market in India. Along with that India can invest in R&D so that India's products could compete in the global market -in quality and in price.
Black money, tax evation and corruption are the enemies of nation. Enact laws to handle such enemies. Implement these laws without any lineancy. No doubt, India will prosper like a shooting star.

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Syed

Jun 11, 2017 at 2:32 pm

Dear Indians... You have the 3rd largest population of Doctors & Engineers in the world. You have produced great scientist.. economist.. THEN WHYYYY make a tea seller m murderer as your PM... just because you HATE Muslims...you will make anyone as your PM to make Muslim's lives difficult. Remember Abdul Kalam... 80 of the missiles ; 100 of your Nukes and 50 of your satellites are made by this Muslim for India... then WHY Hate Muslim..... India is a great example of how they WASTE their talents... Manmohan Singh was a Great Economist ... it was a blessing on you .. but may be for Indian Hindus... the hatred and destruction for Muslims is above their own National interest

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Rob

Jun 11, 2017 at 9:16 pm

To S , do non Muslims question Iranians, stanis and Sudanese on why they support Islamists who are bent on discriminating against non-Muslims. There is no possibility for A non Muslim version of a Abdul Kalam to emerge in Iran where non Muslims are not even allowed to stand in elections for the parliament except for the ONE seat that is alloted for them. What makes you qualified to question Indians when Muslims in stan resort to mob violence against Christians simply because rumours about the Quran being burnt, when they kidnap non Muslims women and forcefully marry them, or when they murder a non Muslim minister s that call for the repeal of the blasphemy laws. The BJP Is a offshoot of a movement that born thanks to the agitations of the Islamists during their greatest project in the sub continent, the par ion.

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virender sehwag

Jun 12, 2017 at 8:21 am

You are not a Muslim. You are a Hindu and that too a sanghi.Tell your friend Rob that however you try you can't shift this debate from economics to religion.

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Emke Nygvos

Jul 25, 2017 at 10:57 pm

If you are who I think you are, stick to hitting and chasing balls as you dont have the intellect for anything else. Follow your friend Sachinbhai and collect expensive "perfumes", shoes and cars without sticking your buttoox into grownup affaira

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Rob

Jun 12, 2017 at 7:44 pm

S it seems you are foreigner. Don't know which country you come from, but in countries like Sudan, Egypt, Iran and stan there isn't much hope for non-Muslims to ascend to the position that Dr. Abdul Kalam held in India. Take Iran for example, non-Muslims are banned from the army, the judiciary, the intelligence service. They are also banned from standing in the elections except for the seats that allotted to them. Does that sound like hate to you if that done to on the basis of your religion? Moving on to stan, mob violence against non-Muslims are common, non Muslim women get carried away from Muslim men and later married forcefully without their families consent. And let's not get started on the blasphemy laws, I am sure you will protest if a Draconian anti terrorist laws are passed in say the UK or France. So forget about non-Muslims in these countries having a non Muslims version of Abdul Kalam. Please advise them first to vote out Islamists .

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Aji Ravi

Jun 15, 2017 at 9:04 pm

S , we do love Muslims. It's the government at the centre which is trying to divide and destroy the secular nature of our country. Our forefathers including mine and yours toiled as freedom fighters to liberate our great nation. Let's pray that the eyes of the common man will be opened to what is happening and decide correctly in the next election.

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ML

Jun 19, 2017 at 4:19 pm

He is one of you, makes no difference who is in power, the govt cares only for that outsourced Islamic language Hindi and nothing else. Islamic origin language Hindi has nothing to do with Hinduism and media continues to lie as usual.

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Syed

Jun 11, 2017 at 2:31 pm

Dear Indians... You have the 3rd largest population of Doctors & Engineers in the world. You have produced great scientist.. economist.. THEN WHYYYY make a tea seller m murderer as your PM... just because you HATE Muslims...you will make anyone as your PM to make Muslim's lives difficult. Remember Abdul Kalam... 80 of the missiles ; 100 of your Nukes and 50 of your satellites are made by this Muslim for India... then WHY Hate Muslim..... India is a great example of how they WASTE their talents... Manmohan Singh was a Great Economist ... it was a blessing on you .. but may be for Indian Hindus... the hatred and destruction for Muslims is above their own National interest

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Syed

Jun 11, 2017 at 2:30 pm

Dear Indians... You have the 3rd largest population of Doctors & Engineers in the world. You have produced great scientist.. economist.. THEN WHYYYY make a tea seller m murderer as your PM... just because you HATE Muslims...you will make anyone as your PM to make Muslim's lives difficult. Remember Abdul Kalam... 80 of the missiles ; 100 of your Nukes and 50 of your satellites are made by this Muslim for India... then WHY Hate Muslim..... India is a great example of how they WASTE their talents... Manmohan Singh was a Great Economist ... it was a blessing on you .. but may be for Indian Hindus... the hatred and destruction for Muslims is above their own National interests

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Sadasivan

Jun 11, 2017 at 1:47 pm

India should concentrate on local consumption for its economy to improve.For this SMEs need Credit,which is not the case now.GST will further shatter the SMEs,as they would not be able to cope.But The Dictator,came out with,the so-called, demonetization,which the SBI head,is saying will further shatter India's economy and her bank due to compe ion,due to a better CASA.

The culprit is India's banking Sector,with huge NPAs,which can be solved ONLY by:-
1.Hair cut,which means the tax payers again bail out the banks and the Defaulters
2.Defaulters and Bank officials have to be punished ,else this would be a vicious cycle.
3.UNSECURED Loans,are taboo.Posting Collateral a must for Loans.
4.Banks should not extend Loans, to defaulters,to pay the Interest to the banks themselves,on previous defaulted loans.But the NDA,in its turn,seems to have signed a SECRET regulation in G20(all G20 members have secretly signed),in 2014,November Australia.As per this;-
i)TBTF Banks have to be bailed out by the DEPOSITORs who would be considered INVESTORs in the bank
II)Derivatives among the Banks will get priority over Depositors,if a TBTF bank run takes place.
In 2014,promptly Rajan made the SBI and the ICICI bank TBTF!
Please google for:-
Bankers' Coup Ellen Brown

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Sadasivan

Jun 11, 2017 at 1:03 pm

Despite G 7,the developed economies are strugg with HUGE Debts.Hence, nations should not be stifled by the G20,which has to be dismantled,for nations to pursue creative and independent polices not hampered by the IMF.G 20,restricts,the options of nations this regard EU has to be dismantled,so that the member nations can print their way out of trouble.At least the masses will get the basis needs,like roti,kapda and makan,which the EU,G 20 and Globalization prevent.

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Sadasivan

Jun 11, 2017 at 1:00 pm

Make In India .if it is for exports is a foolish idea,as Global trade is on the decreasing Trend.Global Debt is high.Global banking System,has become a Fraud,more so,after the arrival of the Derivatives.China was lucky,but now the World is in Depression.Banking which makes an economy strong,is very weak Globally,including India,but it worse,in the developed economies.

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us_a

Jun 11, 2017 at 12:47 pm

How many years after India got its independence from has Congress ruled the country? If Chiddu is crying se week after week in IE Op-Ed pages, how much of the blame goes to Congress? A strong building can't be build when the foundation is utterly weak, for which Congress mis rule is responsible.

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Sadasivan

Jun 11, 2017 at 1:07 pm

But, the States were ruled by different parties,including the regional one and others.It is bad to blame, the past parties in power.The need of the hour is, for the party in Power to do its bit,Democratically and NOT DICTATORIALLY.One should stop pointing fingers(which is useless),,instead of acting for progress.

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vipin

Jun 11, 2017 at 12:42 pm

just wait and watch, he is generating future, so keep patience, dont get aggressive while judging his ability, congress mukt bharat is a must to achieve PM's goal,

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K.Mundanad

Jun 11, 2017 at 11:57 am

Modi may take note of the following statement of the author: "The major manufacturing economies of the world have reached their positions by making factor costs more advantageous if the product were made in their countries rather than made elsewhere." Apart from smugg of fake currency notes into in India, there is another, but worse case of smugg [not fake, but third rate (quality) goods, (the first being earmarked for export to the West and seconds being for domestic consumption)], taking place through our borders, which in effect, clandestinely exports ‘Indian jobs’ to that (our) neighboring country. Adverse effect on our economy, especially labor market and manufacturing segment, need not be overemphasized. This is one of the reasons for jobless growth in India. Such spurious goods are being dumped in our market, dirt-cheap. Inflow of ‘the third rate’ quality goods could be arrested, if center is seized of the seriousness of the issue.

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KS

Jun 11, 2017 at 11:51 am

This article presents a wrong essment with prejudice and malicious intent. Any person with an average intelligence would know that it takes a long time to change perceptions of people, particularly the investing community. Even after investments are made, it wouldn't be as thought the factories are built overnight & production rolled out the next day. Further, all major initiatives for putting up facilities in an emerging economy such as India are intertwined with the global economic outlook. We all are aware of the recessionary phase that major economies are going through. Under the cir stances, establishing manufacturing bases in India would be a daunting task for foreign companies at a time when they have difficulties finding demand for their existing capacities. Which is why India is very rightly trying to tie up such manufacturing with defense imports that could be at once high value as well as serve the purposes of tech transfer & self reliance going forward.

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abhi

Jun 11, 2017 at 1:03 pm

I agree. And the data provided here seems to be like the short term and and medium term effects of demonetization. Long term plans are need of the time.

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Sadasivan

Jun 11, 2017 at 1:10 pm

But one should not commit b ers like demonetization for the profit of US Digital Cos.Please google for:-
How India became Bill Gates' guinea pig:Norbert Haering

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Manish Chheda

Jun 11, 2017 at 10:16 am

The reason for such MAKE IN INDIA decline is :
1. Ease of Forming a Company
2. Ease of Accounting
3. Ease of Permissions required
4. Ease of Recovery/Law
I wanted to manufacture cosmetic products. Forming an LLP or Pvt Ltd was an option .... due to cost and roc and later on closing a company complications had to settle for proprietor Co.
Accounting is not easy wherein one can do it himself online.
Several permission required (although done contract manufacturing the companies who's plant is been used has to be labelled on the product). Why? when formulae and ingredients is all ours.
People not paying (bills due) or (bounced cheque) the legal/law route is one of the worst in the world. Why law doesn't want defaulters to be quickly penalised before they go out of business, run away to other country or expire!!!

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Sadasivan

Jun 11, 2017 at 1:13 pm

Global Trade has fallen and is in the fal trend.Global debt is high.Global banking has become a fraud due to the derivatives.It is easy to make money in Stocks,with central banks and Ins utions acting as plunge Protection teams,than sweat it out to produce tangibles.Oligarchs playing stocks,reduces employment too.And people loose,money due to Bubbles.Double Whammy!

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Jatin Bhutani

Jun 11, 2017 at 10:11 am

That was very cheap to send a notification like" modi says make in india is a flop" mind the words you are using.

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U N

Jun 11, 2017 at 9:54 am

Make in India is flop because it is not well thought of .It is merely a slogan/Jumala .Modi's men viz Nitiayog chief,RBI governor are incompetent persons to understand the meaning.

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Vishwas Patil

Jun 11, 2017 at 9:52 am

Only a fool will dare to put up a factory in India. Even for genuine failure is punished by banks as defaulter by ruining his life with zero understanding of the need to give a helping hand in the hour of need. As a results the bank book losses and the promoter is finished. Now wealth concentrating in a few hands there is hardly any surplus left with families to spend. Demand from rich always for imported high value b ed goods. Agri sector has no money as the middlemen and large stores buy the produce at 25 of its retail value leaving no surplus with the farmers. Modi Govt. policies seem all wrongly placed and framed by the rich and for the rich. Direct credit of subsidies is a very small relief to the poor as it cannot subs ute income. Make in India needs support of small and medium units. Except a few e-com marketing and and IT apps, there is hardly any industrial growth. Make in India for defence is a long shot and will take 4-5 more years to reach the ground. Least hope.

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Raju Gupta

Jun 11, 2017 at 9:33 am

Who cares...there is no scam big or small ...honest govt also PM is trying his best...this is more than enough.

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ML

Jun 19, 2017 at 4:21 pm

No difference between Khangress or BJihadiParty. As usual taxes continue to rise and now BJihadiparty make India into surveillance state by collecting Adhar finger prints to loot more tax.